Hi D.,
I love baking bread, and challah is the best bread in the world! It's sweet (from honey) you can add raisins, and it makes the best french toast in the world. It's the traditional Jewish sabbath bread, and making it can really be an all day project - it's a good rainy or lazy day thing to do.
You can get the kids involved by having them help you knead the bread once it gets doughy enough. It doesn't need too much kneading before the first rise, but they'll love getting their hands dirty and helping you pour the flour into the batter.
Then, after it's risen for two to three hours, it's time for the real fun. You separate out the dough into six pieces and then break those portions into three. They can roll snakes of even size, and if they're old enough they can braid the three snakes together (or you can help them with that part). Once all six loaves are braided, you leave them to rise for another hour, brush them with egg white or whole egg and then sprinkle with sesame or poppy seeds (if you like, it's great without them, too).
Once they're baked you'll have six beautiful little loaves of bread, and the kids can give a few to friends or neighbors or you can freeze the extra. It's also an opportunity for learning about Jewish culture and the Jewish sabbath (if you're open to that). Below are some links to my favorite recipes and information on challah from a cultural perspective.
If you're really open, when you begin to separate the dough, there is a blessing you can say and you can take a portion as a burnt offering, which represents g-d's portion of your bread. I think it's really beautiful.
My Favorite Challah Recipe (add the 1/2 cup of honey under variations for the best challah ever)
http://www.myjewishlearning.com/culture/food/Overview_Ash...
Information on the Challah and the Sabbath
http://en.wikipedia.org/wiki/Challah
http://www.pbs.org/mpt/jewishcooking/history/season1/101h...
for more information google 'challah' and 'jewish sabbath'
Enjoy!